The Victorian Duties Act 2000 (Duties Act) was recently amended to impose duty where a person other than the owner of land obtains an ‘economic entitlement’ in relation to the land.
These new rules apply from 19 June 2019.
In our opinion, these provisions will apply to various standard property development arrangements and will therefore create duty liabilities to such arrangements.
Generally speaking, the new ‘economic entitlement’ rules apply as follows.

  1. The relevant land in Victoria must have an unencumbered value of more than $1 million.
  2. A person, other than the land owner, will be deemed to acquire an ‘economic entitlement’ if the person is entitled to any of the following with respect to the land:
  • to participate in the income, rents or profits derived from the land;
  • to participate in the capital growth of the land;
  • to participate in the proceeds of sale of the land; or
  • to receive any amount determined by reference to or acquire any entitlement in respect of any of the above matters.
  1. The thinking behind these provisions is that if a person obtains the economic benefit in relation to land in Victoria, normally reserved for the owner of the land, then that person should pay duty in respect of the economic interest obtained.
  2. These new rules will apply irrespective of the type of person who owns the land. For example, even if an individual or a discretionary trust owns land in Victoria and the $1 million threshold is met, then these provisions could apply to a third party who obtains one or more of the benefits described in point 2 above.
  3. The new rules impose a duty liability at the time when the economic entitlement is obtained. Generally speaking, this would be at the time of contract – even if the economic entitlements were several years away, as is common with larger property developments.
  4. Property developers in Victoria will need to be extremely careful not to trigger these provisions by entering into agreements with the land owner (even if it is a related party), where some or all of their payment is dependent on future sales, income or profit from the land project.
  5. Note that there are some exceptions for services such as those provided by real estate agents, architects, project managers, planning consultants and private advisory firms. In such cases, even though fees are calculated by reference to, say, the future sale value of the land, the third party service provider is considered to receive a ‘genuine industry fee for service’ and no economic entitlement duty will be imposed.
  6. Generally speaking, where a third party provides a fixed fee arrangement that does not bear any connection to income, rents, profits, capital growth or proceeds of sale of the land – then such arrangements should not trigger the new economic entitlement provisions.
  7. The rules also contain an integrity measure where if the arrangement does not specify a percentage of the economic entitlement obtained by the third party or includes other entitlements or payments to associates, or entitles the person to two or more different categories of economic entitlements, then the third party can be taken to have acquired an interest in the land of 100% – and must pay duty under the Duties Act accordingly. This integrity measure is subject to a discretion on the part of the Commissioner of State Taxation.

Cornwalls has already commenced dialogue with the State Revenue Office of Victoria regarding these provisions, because we believe they can have unintended consequences. In addition, we recently obtained a private ruling from the State Revenue Office regarding these new provisions.

Please contact any of the Cornwalls Revenue Law or Property Law team if you have any questions regarding these provisions.

Disclaimer

This article is not intended to be advice and should not be relied upon in such a capacity. Cornwalls recommends that you seek proper legal advice regarding these matters, suitable to your particular circumstances.

The Author

Dennis Tomaras

PARTNER, MELBOURNE